SuperGroup shares on course for twentysomething
Ken Odeluga December 16, 2015 6:11 PM
<p> SuperGroup remains super-bad, at least in City terms. Its shares on Wednesday resumed their strong recovery of the year with a jump as high as 13%. […]</p>
SuperGroup remains super-bad, at least in City terms.
Its shares on Wednesday resumed their strong recovery of the year with a jump as high as 13%.
That came after the teens-to-twenties high street fashion outlet belied a bearish comment from a major City broker earlier in the week, that sent its stock sharply lower.
Liberum said it had become less convinced of the mid-cap firm’s ability to keep the upper hand in an increasingly competitive UK clothing market.
It said it expected H1 PBT of £18m.
SGP beat that with £19.3m on Wednesday, 54% higher than market forecasts, according to Reuters.
Demographic switch detected
Could positive effects from the new face of SuperGroup, in demand star of the BBC’s Luther, Idris Elba, be showing already?
The 43-year old, who made his name in the HBO series The Wire officially signed up for advertising and other promo campaigns last month.
But SGP has been trailing the signing for at least a year.
The star’s tie with SuperGroup marks something of a symbolic departure from the core consumer age group it had focused on till now, surely no older than the mid-twenties.
Broadening out the intended demographic of its customers makes sense because it offers the opportunity that thirty-year old SuperGroup can ‘grow up’ with its customers.
‘Oldies’ like you and I also tend to be more set in our ways and likelier to become return shoppers.
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From super to minor and back
Still, despite SGP’s earnings beat, there was more than a little truth in brokerage Liberum’s misgivings.
SuperGroup and other high street fashion retailers have at least until recently been burdened with excess stock, according to the broker.
That suggests they face the prospect of extended discounting that could weigh on margins in coming months.
In short it’s questionable whether the broad UK clothing and apparel outlook is significantly improved from last year.
Our sector earnings model gives an average 1.7% fall for revenue at retailers in this group for the current financial year and a 0.4% slip in mean EPS for the next 12 months.
Also, as we pointed out a couple of weeks ago, SuperGroup’s market valuation is once again beginning to look like it could get out of hand.
Having once fetched a forward P/E ratio as high as 47.62, SGP collapsed out of favour to as low as 4.21 in its weakest phase in 2012, and was in low double digits for much of last year.
But the market-implied valuation suggests the stock now trades at an above-peer-average 22.37 times EPS expected for the current full year.
We get 27 times using Thomson Reuters’ ‘daily time series’ with average EPS from the last 12 months.
This implies greater share price risk for non-dividend paying SGP than say M&S, which is still struggling with its clothing division, and a more stabilised Next Plc.
Both of these rivals trade on a less demanding 17x their next fiscal year.
Well that’s the cautious view.
But we’ve seen that investors in this segment rapidly become less wary when fashion revenues are booming. (See ASOS, boohoo.com, et al.)
SuperGroup sales bounded 22% higher in the first half, and 75% of SGP profit is typically booked in H2.
That enabled Wednesday’s share price spike to potentially re-target an 100% extension of SGP’s recovery from 2015 lows, between 833p and 860p.
A price of 2038p was implied.
However, this high-beta stock also looked little more than 4% away from its 2014 high of 1752p which subsequently became resistance that SuperGroup has yet to beat.
1752p exactly matches the most challenging Fibonacci resistance of 61.8%—also extended from March lows.
Sentiment (‘momentum’) is in an upswing though, judging by the Slow Stochastic sub-chart.
Investors will probably watch if the price breaches its narrow channel from September in the medium term, for a sign of strength to new highs.
Failure would bring the 1580p/1625p consolidation zone back into play in the first instance.
Lower levels would be in view in the event of a downward break of the channel.
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